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Environment and Communications Legislation Committee
13/11/2015
Estimates
ENVIRONMENT PORTFOLIO
Clean Energy Finance Corporation

Clean Energy Finance Corporation

[10:07]

CHAIR: Welcome. Would you like to make an opening statement?

Ms Broadbent : We would like to table an opening statement. We are doing so because this is the first time we are appearing in front of this committee, and we thought it was important to ensure there was a good understanding about the operating model of the CEFC and its financial and policy impact.

CHAIR: Thank you very much, Ms Broadbent. We will happily receive that and circulate it now.

Ms Broadbent : If I could make a few more comments briefly, the CEFC welcomes the change in the administrative arrangement orders which has moved the responsibility of our corporation to the Department of the Environment from the Treasury. Because we are a cost-effective policy tool that contributes to Australia achieving its target of an emissions reduction, having the Minister for the Environment enables us to better complement our other policies within that portfolio. To make a final plug: we have just released our third annual report, which I recommend to you as it is a good record of our effectiveness and the impact on this policy tool.

Senator SINGH: Thank you. I have a copy of your annual report here and I have some questions to ask you about it. It is good that you are before this committee. I think we have met before in another committee and through the Senate estimates process. How has the transition from Treasury to the department been?

Ms Broadbent : I will make a comment and then I will ask our CEO to make a comment because he has been spending a bit more time with the department itself. It has very much been an opportunity for the government to, as I said before, get a better understanding about exactly what we are doing and how it can be leveraged into their other policy initiatives. That understanding is going to be integral, I think, to both our increased effectiveness and the increased effectiveness of the policy tools that are already in place. The department itself is being very welcoming and is, I think, pleasantly surprised about what we do, how we do it and how it can be leveraged. So we are very positive about what can be achieved in the future.

Mr Yates : From an ongoing business perspective, it is very positive. The desire of the minister to create a more effective policy outcome as a result of having a close relationship between the three agencies, us, ARENA and the CER, enables us to look at how we can make our policy tools more effective together, rather than being more disparate organisations. I think the idea of setting up the office to draw those organisations together is quite effective. All I can say is that we have been extremely welcome. We have provided any assistance that we can and, so far, it has been very successful. The final orders obviously have not been finalised yet. I think they are due to be finalised at the end of the month, in which case full arrangements will transfer to Minister Hunt.

Senator SINGH: It is good to hear the CEFC talking positively about the future when, obviously, the government still has an abolition bill sitting in the Senate—as a double dissolution trigger if nothing else.

Senator Sinodinos: It is a very positive organisation. They are getting on with the job and doing it well.

Senator SINGH: That is good to hear. Going to some of the components of the annual report, starting with your chair's report, Ms Broadbent, you talk about how the uncertainty regarding the renewable energy target has had a negative impact on investment, with clean energy investment falling by 31 per cent. Do you see that clean energy investment in Australia is expected to fall for this financial year as well?

Ms Broadbent : I do not think it will fall for this financial year, but one of the mechanisms that we think the CEFC can be effective in, because we operate in the marketplace with all the financiers and the project owners, is getting a gauge on their responsiveness to government initiatives. There has certainly been a very significant change in the mood in the environment and the enthusiasm about what lies ahead and what capital expenditures are likely to be undertaken, although they will take some time to be implemented. I think that comes from the clarification about the RET and the change in the dialogue around environment policy since we have changed prime ministers.

Senator SINGH: Whilst there is now certainty there, with the fact that there was so much uncertainty for such a long time, is it taking a while for the renewable energy sector to come back up to speed, so to speak, from that hiatus that it was in some 12 or 18 months ago?

Ms Broadbent : I think we must expect that; we just have to be patient about it. The important thing is that the attitudes have changed. Even if we take the number of inquiries that we have been getting, they have increased. We have always had quite a large number of inquiries because we have actually been more critical to continuing that capital expenditure while the private sector financiers were too uncertain to put their money into these projects. So it is not so much what we are prepared to do or how many people come to the door; it is just that in the dialogue around the industry there is a lot more appetite to make those capital expenditures because they are very long term and they do require certainty.

Senator SINGH: Because of that long-term nature, is there any concern from those inquiries about what the future of RET will be? Obviously, the current RET only goes till 2020, which is not that far away if you are talking about long-term projects like wind. Is there still some uncertainty, in that sense, about the future?

Ms Broadbent : That could benefit from more clarification about what the outcome will be after 2020, but I think the decline in demand for energy overall has also been a significant dampener on investment in any new energy generation, be it clean or coal.

Dr de Brouwer : To provide a clarification, the RET goes to 2030. The target is to be achieved by 2020, but it lasts till 2030.

Senator SINGH: Because of the 10-year margin.

Dr de Brouwer : It is an extra 15 years—it goes to 2030.

Senator SINGH: On your last comment, Ms Broadbent, do you expect that the level of investment from the CEFC will grow in this financial year? You highlight in your chair's report that you have had a growth of 29 per cent in the last financial year, despite the downturn—

Ms Broadbent : Yes, it is a bit hard to predict.

Senator SINGH: which is quite an achievement, actually.

Ms Broadbent : One thing about the large renewable energy projects is that they are lumpy amounts of money. Also, the programs that we initiated with each of the major trading banks were fairly large allocations, and some of the transactions we are doing going forward are smaller pieces. We also had a decline in our leverage with the private sector in the last 12 months and we are hoping that we can at least stabilise that. There are so many dynamics that feed into the exact timetable of when these transactions and investments are made, but we certainly have a very significant pipeline of transactions still there and it depends on when they come through. We recently called for expressions of interest of preparedness to finance the large-scale solar that ARENA has also called for projects on. I think we have had about 40 submissions to that; maybe 20 of them will get through the net. So there is a lot of work being done in cooperation with ARENA to get that initiative moving forward. It is a bit hard to say exactly how much will be drawn down, but we are encouraged by the appetite and the need.

Mr Yates : Last year we committed $484 million. In this current year we are forecasting to commit around $600 million, but, obviously forecasting is an art.

Senator SINGH: How many projects were funded last year?

Mr Yates : I do not have that exact figure with me, but, currently, there are 89 projects that have received funding commitments from us; 55 of those are direct and 34 are from co-investment activities, but I am happy to provide an answer for last year on notice.

Senator SINGH: Are the 89 that you referred to since inception?

Mr Yates : Yes. I have the answer to your previous question. It was seven last year.

Senator SINGH: So the bulk would be in the prior years, if 89 is the total.

Ms Broadbent : Yes, exactly.

Senator SINGH: You have only been in existence for three years.

Ms Broadbent : Three years. It is our third annual report.

Senator SINGH: Three years. Last year was an incredibly difficult year, then, no doubt due to the uncertainty created for the Renewable Energy Target by the then Abbott government. Can you provide a breakdown by technology of what types of projects were funded—how many solar, how many wind and so on?

Mr Yates : I can give you an idea of what we did last year. There is a vehicle that has been set up with EG Group, which is to fund the refurbishment of B and C class offices. We obviously find that people are not renovating commercial buildings; they are leaving them in a pretty ordinary state. So we have set up a fund to buy those offices and upgrade them. That is $125 million. We then have a program with National Australia Bank, and that program is to deliver an energy bonus program, which enables people or small businesses all around Australia, through a website which is run by National Australia Bank, to select better equipment, and if they select appropriate equipment that makes them more efficient and more productive then they can obtain an interest rate saving. You may have seen placards around with Origin talking about fresh solar. We fund Origin to try to roll out solar programs on a no-money-down basis around Australia. We launched the first climate bond; we underwrote that with National Australia Bank.

Senator BACK: When you say 'no money down', no money down by whom?

Mr Yates : In other words, you contract for the solar to be put on your house with Origin, which is the retailer.

Senator BACK: So it is the owner of the dwelling who puts no money down.

Mr Yates : Yes, that is right.

Senator BACK: Who puts the money down?

Mr Yates : Origin actually funds the installation of the system on the house, which is paid back over time through the electricity bills.

Senator BACK: And where do you come into it?

Mr Yates : We have provided a long-term financing facility to Origin.

Senator BACK: And they then repay you?

Mr Yates : They repay us.

Senator BACK: Interest rates?

Mr Yates : Interest rates are the commercial rates.

Ms Broadbent : Consistent with Origin's borrowing levels.

Senator BACK: Thanks. Senator Singh, my apologies.

Senator SINGH: That is all right.

Ms Broadbent : I would not mind clarifying that. While Origin are a good credit—we quite like to have some good credits, or mostly good credits, in our portfolio—what they cannot get access to is easy 10-year amortising money in the structure in these small tranches. So the sort of money that we can make available to them, although it is commercially priced, can exactly fit into those kinds of arrangements for their customers.

Senator SINGH: Perhaps you could table—

Mr Yates : I am happy to table all of that.

Senator SINGH: But I am also interested—I am happy for this to be taken on notice as well—in those 89 projects. How many are in which types of technology, and what is the value of the investment and the percentage of each technology? How much is invested in solar, how much has been invested in wind, and so on?

Ms Broadbent : Before you answer that, Oliver, I was just going to say there are some very good pie charts in the annual report showing the break-up of that, because we have tried to put a geographical map of Australia which shows where they are spread. We are in every state in Australia. We are across a whole range of technologies, and we list those down to try to give a flavour of where that is. I think that is almost better portrayed pictorially rather than verbally. But from our point of view, both to fulfil our public policy objective and to fulfil our need to have diversity in the portfolio for risk management, we really seek diversity both in the spread of the technologies and in the geographical and counterparty aspects. All of that improves our impact, because we are really directed at the financial markets to get them to participate, and the more we can demonstrate across a broad range of technologies the more likely we are to be progressing on a broader front, and then whatever is the cheapest will come through and others see the demonstration effect, and you come down the cost curve and then someone else finances it without us. So we try to be as widely spread as possible. In fact, in addition to Origin, we have three other financings of rooftop solar, and then we say, 'Well, we've done a lot of rooftop solar; now we'll move on to something else.' So we want enough tension in competition between those suppliers, and then we will move to something else which we can support and encourage.

Mr Yates : Page 71 in our annual report sets out the breakdown of technologies.

Senator SINGH: Thank you. Out of that, I thought that solar would obviously be the highest invested technology area.

Mr Yates : That is correct. Solar is the largest area of investment.

Senator SINGH: I think you said before that $484 million was the last financial year's total investment figure. Is that correct?

Mr Yates : Yes.

Senator SINGH: I remember I have asked you before, in the economics committee, about the rate of return. It was a very high rate of return that the CEFC had with its clients. Is that still the case? What is the rate of return?

Ms Broadbent : It is running about six per cent, but it has been coming down as interest rates have come down. It has also come down because in the last 12 months we have had an increased commitment to the public sector. We do not charge the public sector, because it is not such a high risk as the commercial sector. Some of that means, if we are dealing with councils or the city of Melbourne or universities, we have got a different lending rate. So the rate of six per cent is actually down from where we were in the previous 12 months—a bit of the interest rate trend and a bit of the margin and credit that we are taking on.

Senator SINGH: You talk in this report about direct and indirect investment. Can you clarify what indirect—

Ms Broadbent : An indirect investment would be to Origin—it is a direct investment to Origin, but they are then lending to the solar participants. If we take the National Australia Bank, we take the risk of the National Australia Bank, and the National Australia Bank deals with their clients. With the Commonwealth Bank facility, we share the risk with their clients. So we take on the risk of their clients. One is a direct exposure to the ultimate borrower and the other is an indirect exposure to the ultimate borrower.

Senator SINGH: What indirect investments have been made by the CEFC? Is that outlined somewhere in the annual report?

Ms Broadbent : It is, but the National Australia Bank would be one of those indirect investments. I think we would probably classify the climate bonds as an indirect investment.

Mr Yates : I think it really comes down to whether we hold a direct credit exposure to the client. It is particularly in relation to smaller transactions, very small numbers. It is very inefficient for us to do a very large number of small loans, and that was where we tended to get indirect exposures, where we are actually using someone else's lending platform for them to go and deploy that money on our behalf.

Ms Broadbent : And monitor it for us.

Mr Yates : That is right.

Ms Broadbent : It is really to try and extend our reach, leverage our reach, without having to, as Oliver says, deal with individual and small transactions, because we have got to have a cut-off level before we can really get engaged.

Mr Yates : All our indirect investments come under what are called our cofinancing programs, where we are working with another lender for the purposes of tapping smaller borrowers.

Ms Broadbent : All our indirect investments.

Mr Yates : Yes. That is where all our indirect investments come from. On page—for want of a better word—73 of the annual report, it sets out the type of financing that we apply. For cofinancing programs, it says $273 million is in programs where we work through other lenders to deliver our financing broadly across Australia.

Ms Broadbent : Just as an additional comment on the indirect investments: while we are encouraged by it, it often reduces our credit exposure and our administrative costs and it engages the private sector to do this when we are not there or when our money has run out or when we have directed our money to something else.

Senator SINGH: You are still investing in wind energy? There are still investments in wind energy?

Ms Broadbent : Yes. The wind energy investments will stay on the portfolio until they mature. Some of them are actually being bought back and refinanced, so the exposure to wind will change as those repayments are made.

Senator SINGH: So there has been no directive by government for you to not invest in wind energy?

Mr Yates : The investment mandate that is currently in place is an investment mandate which was issued in March 2015. That has not been changed to date. It has been subject to some discussions, but we have not received a formal change in mandate yet.

Senator SINGH: 'Yet'—are you expecting one?

Mr Yates : I think we naturally would. The government has the ability to direct—

CHAIR: Senator, is that a hypothetical question—or speculative at best?

Mr Yates : It is speculative—that the ministers may determine what they would like to do. If they would like to change our mandate they may, pursuant to their own entitlements to do that. But it is probably a question for the minister, if you like.

Senator Sinodinos: Yes, maybe.

Ms Broadbent : I was just going to comment that the investment mandate was always designed to be adjusted so that you could complement other policies—so tailored for the government of the day. It just has to be in line with what the responsibilities of the act are. That has always been available. The first investment mandate that we had from the previous government did not give any guidelines other than, because it was our first one, to see where the need was, where you operate and how it participates. The next investment mandate that we had from the current government was only addressing the rate of return. It asked us to maintain the level of risk and increase the rate of return by three per cent or something but no directive about where. We would expect any government, at any time, can liaise with us about what they want the investment mandate to be.

Senator SINGH: I understand that. I was particularly asking about wind, because this government, particularly under the former Treasurer, has been incredibly antiwind-energy investment or wind energy per se. We know there is a lot on the public record, in relation to the former Treasurer's comments on that, so I was seeking some clarification as to your current directives by this government in that wind energy space.

Senator SINODINOS: Well, nothing has changed.

Ms Broadbent : Yes. So nothing has changed.

Senator URQUHART: Just following on from that, I think you said March 2015, when your mandate—is that right? Yes? Okay. There have been no changes to that since the installation of a new Prime Minister, so nothing has changed, in terms of that. Has there been any change to the government's directive prohibiting new investments in wind power since Malcolm Turnbull became Prime Minister?

Mr Yates : We only receive directions through the investment mandate and the investment mandate has not been changed.

Senator URQUHART: So that is the same. It is still the same—since March. In the last year you have had a few changes and proposed changes to your mandate. Are you setting up a new mandate?

Mr Yates : I think that is, again, a question for our minister. The minister can answer those questions about their own view, that we receive direction—

Senator URQUHART: But you are not aware that there is a new one being set up. You are not working on that at the moment.

Mr Yates : It is the minister's mandate to provide us a draft of that when they are ready.

Senator URQUHART: Right. Minister, did you want to—

Ms Broadbent : We are still in the process of building on the understanding of what we can do, how we can fit in with what the government's policies are. The investment mandate will be a mechanism should they choose to do that, but there has not been any change to date.

Senator Sinodinos: I have not seen anything.

Senator URQUHART: Does the CFC only provide finance to Australian companies?

Ms Broadbent : Not necessarily Australian companies but activities in Australia.

Senator URQUHART: Do you know what percentage of companies are Australian? If there are other companies, do you know what that percentage is?

Mr Yates : The question really goes down to: any activity which is located in Australia is entitled to receive finance.

Senator URQUHART: That is about the location, but it is whether or not they are an Australian company. I am happy—

Mr Yates : It does not matter about whether they are Australian companies. It relates to the location of the—

Ms Broadbent : It does not matter to us. It matters to the senator.

Senator URQUHART: Sorry, I know it does not matter, in terms of your investment. My question was: do you only provide finance to Australian companies? I think the answer would be 'no', if I understand what you are saying.

Mr Yates : Correct.

Senator URQUHART: What percentage of companies are Australian?

Ms Broadbent : We will take that on notice, but I would be surprised if it was not 90 per cent or something. I do not know, but it is true—

Senator URQUHART: If you could take that on notice.

Senator BACK: If you could take it on notice in terms of dollars, also, not just numbers of companies, please.

Ms Broadbent : Yes; certainly.

Senator URQUHART: So it is a percentage of companies. It is also what countries the companies are from.

Ms Broadbent : Yes, and can I just clarify that, because a lot of our investments, especially the larger lumps, have been into projects that have multiple equity owners and multiple debt participants. They are certainly in Australia and on Australian soil but when you come down to 'Are they foreign?' we would say they are an Australian project, an infrastructure project or something that we—

Senator URQUHART: I understand, exactly, what you are saying. It is a bit like multinational food companies that may, in fact, have a manufacturing plank in Australia but they are not actually an Australian company. It is that sort of information.

Ms Broadbent : We will try to give you a map of some of those projects as well. We think of the ownership as Australian because the project might be in Australia. But it could have foreign participants.

Senator URQUHART: So I think you may have answered this in terms of some of Senator Singh's questions but I do want to ask again because you talked about the $484 million forecasting of investments. Has the lack of certainly in the sector due to the government's stance on renewable energy impacted on your investments?

Ms Broadbent : It certainly slowed down the large-scale renewable energy projects and some of that, as I said, has been the lack of clarification about the RET. But another factor has been the decline in demand for energy overall.

Senator URQUHART: I am also interested in what the future may hold and what may be possible in the future for new and developing technologies. How do you see the mix of technologies developing within your portfolio of investments?

Ms Broadbent : We try to get a diversity of technologies within our portfolio, for risk reasons and for policy outcome reasons. But the new technologies are often incremental to the old technologies; so it might be a refinement of the solar panels and the way they are installed or even the process of installing them. We see it even as the financing structure, which may be implemented to facilitate the take-up of that installation. So we have innovation in a very broad interpretation. But in new technologies, in biogas and in waste to energy, we have probably been most significant in a new technology being financed here that had not been done before as opposed to incremental changes in other renewable energy technologies. So we are open to it, and some of our assistance comes in by way of somebody who has a new technology that we cannot put money into immediately but we guide them to who they might go to for equity.

I always think we have been quite an effective matchmaker in these processes, because the transaction then comes back and they have an equity partner who we have introduced them to. I might ask how they know someone, and it turns out we introduced them to each other, and they come back with something that is a bit more able to be financed. We are more in the latter stages but we end up giving a guide to how people might progress these new technologies.

Senator URQUHART: So the mix of technologies developing—you are looking at new technologies coming in—

Ms Broadbent : And enhanced technologies too.

Senator URQUHART: What sort of a mix would we be looking at that might be developing within those investments?

Mr Yates : Shall I have a go, Jillian?

Ms Broadbent : Yes.

Mr Yates : I think the key thing is that the more mature the technology is, the more likely it is able to obtain finance from the financial markets. The less mature the technology is, the more likely we are going to be needed to be involved in the financing. Over time, to achieve our public policy purpose, I would be assuming that most of our portfolio will drift more towards the earlier stage, newer technologies that are coming just by the fact that, if we are not needed, we will not be financing them; if we are needed, we will be financing them. That is really what we have seen in the renewable energy space. Australian banks have been successful in lending in this space. We are delighted that they continue doing that and we do not want to displace them, so we tend to only participate in newer technologies or where there is a problem. For example, where there is not a PBA and there may be merchant risk, which makes it unattractive to the Australian banks to finance.

Senator URQUHART: What do you think the mix looks like in terms of that? Obviously—

Mr Yates : I think innovation—

Senator URQUHART: You are talking about new and emerging. What are the sorts of things you are seeing that will change that mix?

Mr Yates : They will continue to be new and emerging. If we talk about some of the recent transactions we have done, we have just financed in conjunction with ARENA, a very large solar and battery project for a copper mine in Western Australia. That has a six megawatt battery attached. Last year, and now in construction in Australia, is the first power tower, a powered and desalinated greenhouse, which is in Port Augusta. It is a 22 hectare greenhouse with power tower. That is new. Innovation tends to be quite random but it is always happening. So to try to predict necessarily what our portfolio would look like in the future, I cannot say.

Senator URQUHART: I am not asking a hypothetical; I was asking if you had an idea of what that mix might look like.

Mr Yates : I think what we would be saying is that you will always see us straying towards the newer technologies, and the ones that have not been deployed so much in Australia. The waste-to-energy plant we are doing in Western Australia was actually developed by Australians. It was deployed overseas but has never been deployed in Australia. So, if we can get it up in Australia, that is great. Once it is deployed, we expect other lenders to come into those types of transaction.

Ms Broadbent : It is interesting because waste to energy would not be considered a new technology but this is a very slow burn waste which can collect waste of all sorts. Often waste to energy has to be very standardised, and then you know what goes in and what comes out. To that extent it is a new technology in the waste-to-energy area. It is not new to Australia. The fact that it was in 26 countries and not here is quite surprising. I guess in some of these new technologies we are likely to have most impact in the introduction of technologies that have not been readily applied in Australia, but they are probably not new technologies.

Senator URQUHART: I am not focusing particularly on new but obviously that comes into the mix. It is about what the mix of technologies is—which will be new but also those sorts of ones that you are talking about. I note that the CEFC abolition bill is still listed in parliament. Have you had any conversations with the minister regarding your future? Not yours particularly, but the corporation's. I am sure you have had it about yours as well, but I am asking about the corporation.

Ms Broadbent : I don't know that I have had it about mine either. I have been encouraged by the interest and increased understanding about what we have been doing and what we could do. That is all I can say really. I think that is all the minister is required to say. He is just trying to understand how we can be leveraged into other policy initiatives within that portfolio. And being in that portfolio will facilitate that, I think.

Senator URQUHART: I guess the issue is: have you had any conversations about whether or not the abolition bill will continue? Have you had those discussions with—

Ms Broadbent : No, we have not had those discussions. To be fair, we have not had those discussions about the abolition bill with anybody. We just put our heads down and get on with what we have to do under the act, trying to fulfil our statutory responsibility. I think that is how we have kept our spirits up, by not taking too much notice of the abolition bill and when it was coming out. It might be a bit unwise, but it has served us well to do that, to step away from the politics of it and just do what we have been asked to do under the act.

Senator SINGH: I just want to follow on from Senator Urquhart on that—a question perhaps to Dr de Brouwer or the minister—is it still government policy to abolish the CEFC?

Senator Sinodinos: It is government policy in the sense that no-one has come out and said that it is not government policy. I would say that I think the CEFC has done a good job of getting on with things while there has been this uncertainty around its future, and I think that is to their credit. The other point I would make is that within government there is interest in how these financing models can be used not just in this sector but potentially elsewhere to fill potential gaps in the marketplace. We are talking here specifically about renewable energy, but there are other areas of the economy like infrastructure, for example, where there might be alternative financing schemes where this sort of model might have some applicability. But I am now sort of speculating a bit myself. The point is that at the moment no-one has made a decision not to abolish the corporation. They have taken the right attitude. They are getting on with the job and they have some very good runs on the board as a result.

Senator SINGH: But it is still government policy to abolish the CEFC?

Senator Sinodinos: We embrace the future with positivity.

Senator SINGH: It was only on 21 October that the now Prime Minister said it was the government's policy to abolish it because 'we do not support government banks for the simple reason that new government banks are performing roles that can be perfectly adequately fulfilled by the private sector and are not necessary'.

Senator Sinodinos: That is the qualification at the end. You do not introduce or create something simply to double up or duplicate something that is being done elsewhere. As I think the officers have indicated, the role they are seeking to fill is a role which supplements and complements the market; it helps in a sense to develop a new part of the market, rather than doubling up and doing things that in this case commercial banks can undertake.

Senator SINGH: But you are talking very positively about the CEFC, as is Minister Hunt—now the CEFC sits within the department of his portfolio—yet the Prime Minister is saying something completely different.

Senator Sinodinos: When there is a change of policy, we will all know about it.

Senator SINGH: It sounds like it is the Prime Minister's call, and the rest of the cabinet are being ignored.

Senator Sinodinos: No. As Cabinet Secretary all I can say is that there will be proper cabinet processes. But we are all speculating now. If there is a change of policy, that will be communicated.

CHAIR: Thank you. I think that question has been asked and answered comprehensively. Senator Singh, is that all?

Senator SINGH: I hope that you are still in existence in the future, Ms Broadbent, as the CEFC. You are doing a very good job. Thanks.

CHAIR: Thank you, Senator Singh. Senator Back.

Senator BACK: Thank you. That allows me to ask about the low-emissions vehicle contribution. Can you give us an understanding of that—$50 million, the Eclipx Group—does it fall into the direct or indirect? Where is the risk? And I congratulate you on this initiative. I think it is fantastic.

Mr Yates : That transaction is really an opportunity for us to work with a group which has broad access to the market for financing fleets. So they are currently financing fleets. What we said to them was: 'We need people to look to making a better decision when they are choosing fleets.' To be honest, government fleets are the most heavy in relation to their current emissions. That stems from the fact that people tend to be making a choice purely on price and not looking at overall performance. So, what we have done is worked with this group. They have a securitisation vehicle. We have taken a slice of the capital in that securitisation vehicle on the condition that they offer a lower rate for customers who choose vehicles in their class which are 20 per cent better than the average of the vehicles that are available in that class. So it actually means that when people look at it, they will be presented with an alternative: 'You can buy this for your fleet or you can buy that for your fleet. This is the financing charge that applies to this one, because it is a lower emitting vehicle; or, if you want to, you can buy the other one, but your financing charge will actually be higher within your fleet financing.'

Senator BACK: Further to the cabinet secretary's comment, I have two questions: firstly, would this facility be available to other major vehicle leasing organisations as well; and, secondly, if there are—and I hope there are—these savings to be made, in a sense why is it necessary and why wouldn't government just say, 'We will only lease vehicles which are actually of this higher vehicle emissions standard?'

Mr Yates : To answer your last question: I think that would be a delightful way for government to use their purchasing power provisions.

Senator BACK: So do I.

Mr Yates : But, in relation to other vehicle lessors, we would love to talk with them about that opportunity.

Senator BACK: Sure. So this is not just a one-off. If there were others out there—

Mr Yates : No, which is the reason why you see that we have facilities with the National Australia Bank, we have them with CBA and we have other facilities with other groups as well. We encourage this. The country is very large. The borrowers are very diverse. We are a small team. We need to work with financing partners to try and change our current operating activities around the nation.

Ms Broadbent : One of the important components of that facility is that we are going to collect from them, after 12 months, data on whether this made a difference to the fleets that they financed. That is a good piece of information to say: 'Does government want to do anything broader on this?' You would be absolutely surprised how half a per cent on a leasing rate starts a conversation. Someone starts looking at a car fleet and thinks, 'Oh, half a per cent; I'd better do that.'

Senator BACK: I would not be surprised, Ms Broadbent. I would be there looking for it.

Ms Broadbent : So a lot of it is just testing out whether that model really makes a difference to people's decision.

Senator BACK: I do not want to take time away from Senator Waters, but I have two other quick questions. Carnegie Wave Energy: you are contributors to Carnegie's programs. I think there are still new and emerging—

Mr Yates : Yes, we are a lender to Carnegie, and that is a good example of financial innovation. In that transaction, we lent to Carnegie, secured against their future receivables under the R&D credit arrangement. As you know, the R&D credit arrangement is a receivable from the federal government. We structured a new financing arrangement where we would lend against a federal government receivable. We think that is a very sensible financing arrangement, because we think it is low—

Senator BACK: It is a very secure one—that's for sure.

Mr Yates : Yes. I am very glad to say that I think you are going to find many other commercial banks now adopting that as a funding tool, which makes absolute economic sense. If we want people to raise the money to undertake R&D then it makes sense that if they can borrow the money upfront, apply that money and then receive it back from the government, having done that, as they are entitled to under the R&D concession, we will be able to motivate people to activate their projects faster.

Senator BACK: And guarantee your risk.

CHAIR: Just on that: can you provide on notice some more information about that funding model?

Mr Yates : Sure. Delighted.

CHAIR: Thank you.

Senator BACK: I know that hydroelectricity is not new, but certainly the development of software to make it far more efficient and the upgrading of aged assets are. Is there any space for you in the hydroelectricity industry for them to improve their productivity?

Mr Yates : We are not seeing a lot of projects in that space. Again, that is eligible if it really cannot be financed by the private sector. Most of the people who own hydro vehicles at the moment are generally pretty good credits.

Ms Broadbent : On that: we are actually hopeful that, should the abolition bill and the policy be changed, we will get a lot more opportunities to diversify what we have been doing, because a lot of people I bump into in the street say, 'Are you still going?' I think there is a confusing message out there. We are hopeful that that could change in the future.

Senator BACK: I heard what you said, Chair.

Senator WATERS: Yes, I think we are all hopeful. I will start by commending the work of CEFC and your continued positive rate of return to the bottom line for taxpayers as well as abating carbon—keep up the good work.

Ms Broadbent : Thank you.

Senator WATERS: On that point, obviously, yesterday we had the results of the second auction under the ERF released. I am interested, if you have got the figures to hand, in the amount of abatement that the CEFC has been able to deliver and at what profit to the taxpayer, given that we know we have spent half a billion odd yesterday to achieve a certain amount of abatement. I am interested in the comparison of what the CEFC has been able to achieve.

Ms Broadbent : I will let Oliver answer the specifics on that, but we have been surprised how, even with the half a per cent incentive that you can give on interest rates, it would be enough to trigger a change in behavioural patterns and it is really only squeezing our margin, not necessarily giving it away. It is giving it away in the sense that it is an opportunity cost but it can be quite an effective tool in terms of the specifics.

Mr Yates : We have indicated that, if all the projects that we have committed to actually got built, over their operation they would generate emissions savings of approximately $4.2 million tonnes per annum. In relation to the cost of abatement, the real question is that we are obviously running a very different model, so you are not comparing apples with apples when you compare the ERF with what we are doing. We are lending and, as the chair pointed out, if you really started to look at the multiplier effect, you could have—by potentially changing people's selections or behaviours—quite a large impact at a relatively low cost.

The ERF is also trying to do that. It is just trying to use a different delivery mechanism. Because we are a financing team, we look at all of our financing return and apply all of our financing return to the amount of carbon. So it can look like it is a very cheap way of doing it but, obviously, we are looking at all of the financing profits from being a lender to creating those carbon savings. The ERF model is saying, 'I'm just looking at the carbon savings,' whereas we are looking at the overall financing savings on carbon.

We have often talked about the negative $2 or trying to do things at a profit, but it is actually probably not a very easy and a true representation to try and compare those two as apples for apples, because they are just different.

Senator WATERS: It is very modest of you, Mr Yates. Thank you for that clarification.

Ms Broadbent : But we have to say it is still certainly a positive figure in terms of making a contribution to achieve an emissions reduction.

Senator WATERS: Indeed. On that, we had some questions earlier about the rate of return and I hear you say that, through circumstances beyond your control—rates changes and so forth—that the rate of return has reduced from previously. I cannot recall the precise figure but I think it was, for every dollar you invested, something like $2.46.

Ms Broadbent : I think that has come down to about $1.80.

Senator WATERS: Thank you—that was going to be my next question; still an impressive rate of return.

Ms Broadbent : Sorry: the $1.80 is the matching of the private sector funds. For every dollar we put in, we have got $1.80 from the private sector; and the $2.40 was, every dollar we put in, we got $2.40 from the private sector. So you might have had another—

Senator WATERS: Okay, I have mixed my—not really my metaphors. Thank you. So the relevant change is: the $2.46 is now $1.80. In your annual report, I, likewise, was interested in your investment in fuel-efficient vehicles. You mention—I think, Mr Yates, this is in your portion—that vehicle efficiency is an area in which Australia lags behind the rest of the world. You say that Australia's average fuel economy is amongst the lowest in the world. Can you tell me in your investment experience: is private sector investment or investment by the CEFC being hampered by the lack of vehicle fuel efficiency laws in Australia?

Mr Yates : I think people will buy what is available on the shelf, and in Europe you just cannot buy cars with the high level of emissions that you can in Australia, because they have greater emissions standards. People will make a choice and, if the standards are not tight enough for the production of the vehicles that are currently within the fleet that you can buy, then ergo you will get the average of what is available. Australia's available new car fleet is less efficient than the available fleet in Europe, for example.

Senator WATERS: Do you think it is a risk that we might have lower fuel-efficient vehicles effectively dumped into the market in Australia, given our absence of standards?

Mr Yates : I cannot speculate on that. Fuel efficiency standards are really a government policy question.

Senator WATERS: Or lack thereof.

Dr de Brouwer : I could clarify. The government has announced that it is going to go through its own assessment and implementation time frame for introducing motor vehicle fuel efficiency standards. That is now—

Senator WATERS: So they are going to look at it in 2017. I do not think they have committed to actually implementing it as such.

Dr de Brouwer : It is going through what it would be in 2016 and then examining implementation in 2017.

Senator WATERS: 'Examining' was the key word, I believe. Thank you for that. I will move on from that. I am interested in whether there is any relationship, formal or informal, or discussions between CEFC and NAIF, the Northern Australian Infrastructure Facility.

Mr Yates : There are. Not surprisingly, our mandate is across the north of Australia. There are wind projects in northern Queensland. We have solar and other projects in Western Australia that would technically be within the zone that NAIF could apply. To be honest, given that they are looking at running a model quite similar to the CEFC, we have made available to them all of our corporate information, all of our policies, procedures and how we operate, because it is an efficient thing to do in government: make sure you share. Taxpayers paid for all of our knowledge and we make that fully available to anyone.

Senator WATERS: Will you bid into their fund or perhaps suggest that some folk who come to you bid into their fund?

Ms Broadbent : It is just a matter of looking at how we might complement what they want to do in that fund. As Oliver said, we have certainly been very ready to say, 'The components of our success, to the extent that we have been successful, have been the disciplines, the commercial interface, the leverage with the private sector, the fact that you can get things happening with half a per cent of incentive rather than throwing a whole lot of money at it.' We are very parsimonious in how we spend that. You can often achieve that through structuring rather than saying, 'Here's a whole pile of money,' and just waiting for people to come to the honeypot. It is that kind of operating model that we have been in discussions with them about. We have to be in renewable energy, energy efficiency and low-emissions technologies, and, if anything fits into that, we can co-finance with them or just guide them with what has worked for us.

Senator WATERS: Great. Let's hope that they take your advice on board. I think the draft criteria have been released recently. You talked earlier about the investment mandate. You said that the March 2015 one is still on foot. When will the revised mandate be issued?

Ms Broadbent : That is in the hands of the government.

Senator WATERS: Does the cabinet secretary have anything to add on that?

Senator Sinodinos: No, I do not.

Senator WATERS: Has there been progress made in the negotiations?

Ms Broadbent : The process is always that we receive a draft investment mandate, we respond, it comes back and it goes fourth. We have not started that process. We have not received a draft investment mandate since we had the formal investment mandate—

Senator WATERS: In March?

Ms Broadbent : We had a draft under the previous responsible minister.

Senator WATERS: Indeed. I read it with horror.

Ms Broadbent : That did not progress because of the interchange about the workability of it.

Senator WATERS: If you could provide on notice any information that you have in relation to the workability which, as you say, was lacking in that draft, I would be very interested. Thank you. There were some great questions earlier about the model of financing for rooftop solar that I am likewise interested in. I think it is a fantastic investment model. I understand the US is using it. You were saying that it is a model you have employed with Origin. Is it just with Origin? Are any other customers interested in that particular financing model? What is the take-up so far? How many households have utilised that funding option?

Ms Broadbent : I will give initial comment and Oliver can add to it. We have four different financing models and they are all very different. Some of them have, as Oliver said, no up-front payment by the customer, because that is made by, in this case, Origin and then they pay it back over their fixed price electricity bill over time. Others have a different financing model in that there might be some part payment up-front. It is interesting how the four are very different. We have left it to the marketplace to choose between those four and offered the same financing arrangements, depending on the credit, to each of them.

CHAIR: Senator Waters and Ms Broadbent, it is now 11 o'clock.

Senator WATERS: Could Ms Broadbent just finish that last point?

CHAIR: You can finish the last question and put the other questions on notice because we do have to conclude.

Senator WATERS: Thank you.

Ms Broadbent : I will ask Oliver about the drawdown under those facilities.

Mr Yates : I will take it on notice, if that is okay. I will come back to you.

Senator WATERS: Okay. I am very interested, so give me lots of info. Thank you.

CHAIR: That concludes examination of the environment portfolio. Senators are reminded that written questions on notice should be provided to the secretariat by close of business on Wednesday, 18 November 2015. I thank the minister and officers for their attendance. I also thank Hansard, Broadcasting and, of course, our wonderful secretariat staff.

Committee adjourned at 11:01